83057 (Author at Cato Institute)https://www.cato.org/
enLucia v. SEChttps://www.cato.org/publications/legal-briefs/lucia-v-sec
Russell Ryan, Ashley Parrish, Ilya Shapiro, William Yeatman
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<p>How many unconstitutional administrative trials must one endure before getting the chance to argue your case in an Article III court? According to the U.S. Securities and Exchange Commission, the answer is at least two.</p>
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<p>Raymond Lucia already put up with one unconstitutional agency adjudication. In 2012, the SEC charged Lucia, a financial adviser boasting a sterling record, with “fraud” based on a novel legal theory. The SEC could have brought the case to federal court, where defendants enjoy discovery rights and evidentiary protections. Instead, the SEC tried Lucia in‐​house, where there are no such guarantees, and his case was assigned to an administrative law judge who bragged about never ruling against the government. Ultimately, the SEC imposed severe penalties on Lucia, including steep fines and a lifetime ban from his chosen profession.</p>
<p>Lucia challenged the agency’s order in federal court, arguing that he’d been the subject of an unconstitutional proceeding. Specifically, he argued that SEC’s administrative law judges are “inferior officers” who had not been appointed by the “President alone…Courts of Law, or…Heads of Departments” as required by the Constitution. After the D.C. Circuit deadlocked over his case, Lucia successfully petitioned for Supreme Court review. Cato filed briefs supporting Lucia’s cert petition and then on the merits.</p>
<p>In 2018, the Court held in Lucia’s favor and invalidated his SEC proceeding. To comply with the Court’s order, the SEC “ratified” its administrative law judges’ prior appointments. But the SEC’s Appointments Clause “solution” brought about a separate constitutional violation involving the <em>removal</em> of these same officials. As a matter of constitutional law, the agency jumped from the frying pan right into the fire. </p>
<p>Under the Court’s precedent, the Constitution does not permit Congress to design a regulatory agency with two or more “layers” of officers who cannot be fired “at will” by the president. Yet SEC judges are “officers” with not two but <em>three</em> layers of tenure protection. SEC judges cannot be fired at will (layer one); instead, they are removable at the behest of tenured SEC commissioners (layer two) after a trial by the Merit Systems Protection Board (layer three). This triple insulation contravenes the Court’s current interpretation of the Constitution’s structure.</p>
<p>Now the SEC is trying to force Lucia to participate in another unconstitutional agency adjudication, with all the associated expense and inconvenience. Enough is enough. With the help of the <a href="https://nclalegal.org/wp-content/uploads/2018/11/Lucia-v.-SEC.-et-al-Complaint-for-Declaratory-and-Injunctive-Relief.pdf" target="_blank">New Civil Liberties Alliance</a>, Lucia filed <a href="https://nclalegal.org/wp-content/uploads/2018/11/Lucia-v.-SEC.-et-al-Complaint-for-Declaratory-and-Injunctive-Relief.pdf" target="_blank">suit</a> against the SEC in a federal district court in California. All he seeks is his day in a court that passes constitutional muster.</p>
<p>On August 21, 2019, the district court dismissed Lucia’s case for lack of subject‐​matter jurisdiction, concluding that Congress intended to preclude district court purview over Lucia’s constitutional claims and channel those claims through an administrative process. Lucia has appealed the district court’s order to the Ninth Circuit.</p>
<p>Cato, joined by the Cause of Action Institute and Competitive Enterprise Institute, today filed a brief in his support. We argue that the district court misconstrued (and thereby trivialized) a serious ongoing constitutional injury, for which Lucia may never get any opportunity to seek or obtain redress. Because this case alleges a colorable constitutional claim of ongoing <em>ultra vires</em> government action, and because Congress cannot have intended to strip district courts of jurisdiction over such a claim, the Ninth Circuit should allow Lucia’s case to proceed in federal court.</p>
<p>For more background on this case, see Cato’s briefs in <a href="https://www.cato.org/publications/legal-briefs/lucia-v-securities-exchange-commission-1"><em>Lucia v. SEC</em></a> and <a href="https://www.cato.org/publications/legal-briefs/free-enterprise-fund-v-pcaob"><em>Free Enterprise Fund v. PCAOB</em></a>.</p>
</div>Wed, 05 Feb 2020 08:32:50 -0500Russell Ryan, Ashley Parrish, Ilya Shapiro, William Yeatmanhttps://www.cato.org/publications/legal-briefs/lucia-v-secCochran v. SEChttps://www.cato.org/publications/legal-briefs/cochran-v-securities-exchange-commission
Russell Ryan, Ashley Parrish, Ilya Shapiro, William Yeatman
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<p>How many constitutional infractions must one endure at the hands of the government before getting the chance to be heard in an Article III court? According to the Securities and Exchange Commission (SEC), the answer is at least two.</p>
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<p>In April 2016, the SEC commenced an enforcement proceeding against Michelle Cochran for alleged violations of federal accounting regulations. The proceeding took place before an administrative law judge who was <a href="https://www.wsj.com/articles/fairness-of-sec-judges-is-in-spotlight-1448236970" target="_blank">reported</a> at the time to have said to defendants that “they should be aware he had never ruled against the agency’s enforcement division.” True to his word, the SEC judge issued an initial decision ruling in the SEC’s favor. Ms. Cochran was fined $22,500 and banned from practicing as an accountant for at least five years. But before the SEC could finalize its order against Ms. Cochran, the Supreme Court ruled in <a href="https://www.cato.org/publications/legal-briefs/lucia-v-securities-exchange-commission-1" target="_blank"><em>Lucia v. SEC</em></a> that administrative law judges are “inferior officers” subject to the Appointments Clause. Because SEC judges had not been appointed by the “President alone…Courts of Law, or…Heads of Departments”—as required by Article II—the Supreme Court invalidated all ongoing administrative enforcement proceedings before the SEC, including the one against Ms. Cochran.</p>
<p>After <em>Lucia</em>, the SEC attempted to cure this constitutional defect by “ratifying” its administrative law judges’ prior appointments. The problem is that by addressing its Appointments Clause violation, the SEC is forced to violate the Constitution’s Removal Clause. In <a href="https://www.cato.org/publications/legal-briefs/free-enterprise-fund-v-pcaob" target="_blank"><em>Free Enterprise Fund v. PCOB</em></a>, the Supreme Court held that “officers” of the United States may not be insulated from presidential control by more than one layer of tenure protection. Yet the SEC’s judges enjoy employment protections, and they are removable by SEC commissioners, who also enjoy employment protections. That is, the SEC’s administrative law judges are “officers” with at least two layers of tenure protections, and, therefore, run afoul of the Supreme Court’s reading of the Removal Clause in <em>Free Enterprise Fund</em>.</p>
<p>In its <a href="https://www.supremecourt.gov/DocketPDF/17/17-130/36184/20180221202805163_17-130tsUnitedStates.pdf" target="_blank"><em>Lucia</em> brief</a>, the SEC acknowledged this constitutional quandary. Notwithstanding this concession, and although the SEC has the discretion to bring its enforcement proceedings in an original action before an Article III court, the agency reassigned Ms. Cochran’s case to a new administrative law judge. As a result, the SEC knowingly subjected Ms. Cochran to a second unconstitutional enforcement proceeding, which remains ongoing.</p>
<p>Enough is enough. In January, with the help of the <a href="https://nclalegal.org/" target="_blank">New Civil Liberties Alliance</a>, Ms. Cochran filed suit against the SEC in a federal district court in Texas. She argued that she should not have to undergo a second unconstitutional enforcement proceeding. To be clear, she’s not asking the court to void the SEC’s charges against her or otherwise diminish the SEC’s enforcement power. Ultimately, Ms. Cochran seeks only for a federal court—and not an unconstitutional administrative law judge—to try the SEC’s case against her.</p>
<p>On March 25, 2019, the district court dismissed her case for lack of subject‐​matter jurisdiction, concluding that Congress intended to preclude district court jurisdiction over Ms. Cochran’s constitutional claims and channel those claims through the administrative process. Ms. Cochran has appealed the district court’s order to the U.S. Court of Appeals for the Fifth Circuit.</p>
<p>The Cato Institute, joined by the Cause of Action Institute and the Competitive Enterprise Institute, today filed a brief in support of Ms. Cochran. We argue that the district court misconstrued (and thereby trivialized) Ms. Cochran’s serious ongoing constitutional injury. In addition, we argue that parties like Ms. Cochran may <em>never</em> get any opportunity to seek or obtain redress for their constitutional injury, and even if they do it will be too late to undo or remedy the injury. Because this case alleges a colorable constitutional claim of ongoing <em>ultra vires</em> government action, and because Congress cannot have intended to strip district courts of jurisdiction over such a claim, the Fifth Circuit should allow Ms. Cochran’s case to proceed in the district court.</p>
</div>Mon, 17 Jun 2019 14:20:00 -0400Russell Ryan, Ashley Parrish, Ilya Shapiro, William Yeatmanhttps://www.cato.org/publications/legal-briefs/cochran-v-securities-exchange-commission